US embassy cable - 05TAIPEI1029

UNCLAS SECTION 01 OF 02 TAIPEI 001029 
 
SIPDIS 
 
STATE PLEASE PASS AIT/W AND USTR 
 
STATE FOR EAP/RSP/TC, EAP/EP AND EB/IFD/OIA 
 
USTR FOR SCOTT KI 
 
USDOC FOR 4420/USFCS/OCEA/EAP/LDROKER 
USDOC FOR 3132/USFCS/OIO/EAP/ADAVENPORT 
TREASURY FOR OASIA/ZELIKOW AND WISNER 
TREASURY PLEASE PASS TO OCC/AMCMAHON 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN 
 
Sensitive but unclassified 
 
E.O. 12958: N/A 
TAGS: EINV, EFIN, ECON, PINR, TW 
SUBJECT:  Taiwan Markets Calm After China's Anti-secession 
Law 
 
Summary 
------- 
 
1.  (SBU) Taiwan's financial markets shrugged off China's 
"Anti-Secession Law" on March 8.  The NT Dollar (NTD) 
appreciated against the U.S. dollar (USD), while the stock 
market index declined slightly.  Foreign portfolio investors 
increased net stock purchases.  Local economic observers 
believe that the law's overall effect on Taiwan's economy 
will be slight.  END SUMMARY. 
 
Foreign Exchange Market 
----------------------- 
 
2.  (SBU) Taiwan's foreign exchange market was relatively 
calm on March 8, when China's National People's Congress 
began consideration of the "Anti-secession Law."  The bill, 
which has aroused passions among politicians in Taiwan, did 
not weaken Taiwan's currency.  Instead, the NTD continued 
the appreciation trend it has been on throughout the second 
half of 2004, gaining another 0.4 NT cents to close March 8 
at NT$30.875 per USD.  Alex Pan, a senior foreign exchange 
trader at Bank of America (BOA), told AIT/T he had not seen 
any capital flight as a result of the controversial bill. 
He said he expected the NTD to continue to appreciate.  Pan 
noted that adding to the pressure on the NTD to appreciate 
were rumors that the European Union Central Bank plans to 
raise interest rates, thus further weakening the USD. 
 
Stock Market 
------------ 
 
3.  (SBU) Despite strong rhetoric from Taiwan officials, 
China's Anti-secession Law also did not cause any 
significant drop in the stock market in Taiwan on March 8. 
The stock market index declined 0.76% from the previous day, 
well within the range of daily fluctuation.  The decline of 
0.76% was after a daily rise of 1.3% for several days in 
February as foreign portfolio investors poured capital funds 
into Taiwan.  The trading volume on March 8 was NT$93.7 
billion, comparable to the average daily trading volume of 
NT$90.4 billion in the previous ten trading days.  On March 
8, foreign portfolio investors posted net stock purchases of 
NT$5 billion, sending their cumulative net stock purchases 
during the first eight days of March 2005 to NT$30 billion. 
 
4.  (SBU) SinoPac Securities Company senior consultant Huang 
Wen-jur told AIT/T that China's Anti-secession Law had not 
caused any panic in Taiwan's stock market.  According to 
Huang, if there was a panic the stock index would drop 200- 
300 points and at least 40-50 issues plunge to the daily 
decline limit of 7% below the previous day's closing price. 
 
Financial Markets on Day 2 
-------------------------- 
 
5.  (SBU) On the morning of March 9, both Taiwan foreign 
exchange market and stock market both remained calm.  The 
NTD gained slightly more against the USD, with the NTD:USD 
exchange rate fluctuating around NT$30.8 per USD.  In the 
first hour-and-a-half of trading, the stock price index rose 
12.34 points to 6,185.68 points. 
 
Limited Impact on Taiwan 
------------------------ 
 
6.  (SBU) Local observers do not expect China's Anti- 
secession Law to have a significant impact on Taiwan's 
economy.  BOA's Alex Pan told AIT/T that the bill was not a 
surprise to the public.  Taiwan people have been aware of 
the pending legislation for weeks.  Pan indicated he 
believed that the bill was designed to check militant 
factions within Beijing's administration.  Wang Ling-ling, 
Chairman of Taiwan's General Chamber of Commerce, commented 
that contents of the bill were actually "better" (i.e., less 
militant) than expected before the bill was published on 
March 8.  Wang believed that cross-Strait economic relations 
would continue improving as non-stop cargo flights get 
started across the Taiwan Straits. 
PAAL